MA: Few Marijuana Shops Will Open By July, Industry Experts Say

Photo Credit: Ethan Miller

With the expected start of Massachusetts recreational marijuana sales just weeks away, you might think cannabis companies would be giddy, eager to pocket their slice of a market that could be worth upward of $1 billion by 2020.

But industry executives predict that fewer than a dozen retail pot shops will open in July.

In fact, the nascent recreational industry and the state agency charged with overseeing it are bracing for a painfully slow rollout — and the accompanying disappointment of voters and consumers who were initially promised sales would start months earlier, in January 2018.

Dispensary operators and would-be pot entrepreneurs are preoccupied with a list of pressing challenges: local restrictions on marijuana businesses; the reluctance of banks, landlords, and traditional lenders to work with them; and the lingering stigma around the product they hope to sell.

“We’re just at the starting line,” said David Torrisi, the president of the Commonwealth Dispensary Association. “It’s going to take 18 to 24 months until there’s a robust retail marketplace. People who want to get into this industry need to be in it for the long haul, because it’s going to be a slog getting it established.”

Torrisi, whose group represents the medical dispensaries that are likely to be among the first to secure recreational licenses this summer, and other industry experts say the hesitance of local officials is the biggest brake on the cannabis industry’s growth.

Roughly two-thirds of the state’s 351 municipalities have enacted either permanent bans or temporary moratoriums on licensed marijuana companies.

The remaining cities and towns, meanwhile, aren’t exactly rolling out the green carpet. Many have limited the number of establishments, enacted restrictive zoning rules, or are simply moving slowly.

“A lot of towns really don’t want us,” said Colonel Boothe, the chief financial officer of Holistic Health Group Inc., which is seeking to open dispensaries in Worcester and other communities. “The vote [to legalize marijuana] was well over a year ago, and they still haven’t finalized their [zoning] bylaws. It’s as if they don’t want it to happen. We’re sitting here waiting and waiting.”

Other communities are demanding large payments from prospective operators in exchange for signing so-called host community agreements, which the state Cannabis Control Commission requires before it will issue a recreational permit.

Some of those local contracts appear to fly in the face of state law, which says any municipal fees cannot exceed 3 percent of a recreational marijuana company’s revenue and must be “reasonably related” to actual costs the facility imposes on the city or town. The provision was meant to prevent a repeat of the enormous payments municipalities extracted from operators under the medical marijuana system, which has no cap.

Take, for example, CommCan, a family-owned medical marijuana company that’s also seeking recreational licenses and has a provisional permit to grow cannabis in Medway.

To secure the town’s approval for its medical operation, CommCan agreed to buy the fire department $263,000 worth of breathing apparatuses, make annual payments to various town departments totaling $55,000, and maintain the public road near its cultivation facility. The deal lasts five years; if the sides can’t agree on an extension, it automatically renews for another two years.

Now, to get its recreational host community agreement, the company has agreed to pay Medway an additional $500,000 over five years, the longest term allowed by law.

Ellen Rosenfeld, the company’s president, praised Medway for welcoming CommCan and said the town has been easy to deal with. Still, she acknowledged the new contract has little relation to the company’s actual impact on the town. “It’s not calculated,” she said. “That’s just what they wanted.”

Medway town administrator Michael Boynton defended the agreement, saying it was approved by the town’s lawyers, that the company entered into it voluntarily, and that Medway has significant oversight costs.

“I have not sat down to calculate every bit of [the cost imposed by CommCan] because the company didn’t require us to do that,” said Boynton. He added that state law should be changed to allow agreements longer than five years, calling the time limit “crazy.”

Other communities have openly sought to sidestep the state cap on payments.

Officials in Uxbridge, a town on the Rhode Island border that several operators are eyeing as a good location to grab cross-border business, voted to require a $25,000 upfront payment from any would-be recreational company, plus 3 percent of annual revenue. If those payments turned out to exceed the actual costs imposed on the town, they would still be due, but as mandatory “donations.” Uxbridge selectmen rescinded the policy two days after the Globe inquired about it, but other communities have enacted similar requirements.

“This is municipal avarice,” said Jim Borghesani, the spokesman for the group that sponsored the 2016 legalization ballot measure. “It’s a clear end-run around the measure’s intent and spirit.”

High local barriers to entry especially pose a problem for smaller operators. While the Massachusetts Cannabis Control Commission has set low licensing fees and enacted programs to boost minority entrepreneurs and those from communities with high rates of poverty and drug arrests, few if any municipalities have mirrored those “equity” programs on the local level, threatening to stymie the state’s efforts.

“Everyone at the state level is on board with equity, but it really hasn’t trickled down to the cities and towns,” said Shanel Lindsay, a marijuana activist and businesswoman who’s helping equity applicants navigate the licensing process. “At the same time, these big outside companies are coming in and wooing them with sweetheart deals.”

The marijuana industry faces other constraints that could also contribute to a slow debut. Chief among them: a lack of access to banking services. Currently, Century Bank is the only institution in the state that openly serves medical dispensaries; it’s unclear whether it will serve the recreational market, too.

In remarks to the inaugural gathering of the Massachusetts Cannabis Business Association this week, cannabis commission chairman Steve Hoffman said he was trying to persuade credit unions and other financial institutions to service the cannabis industry. So far, there are no takers.

“I can’t force anybody into entering this industry,” Hoffman said. “I wish I could say it will be solved by July 1 . . . but I don’t think that’s the case.”

Similarly, landlords and many traditional lenders are reluctant to do business with marijuana companies, worried about the legal risks posed by federal law. That’s making it hard for prospective recreational operators to find sites and the capital needed to construct cultivation facilities and retail shops.

But cannabis operators said squeamishness about their product — marijuana itself — is magnifying those concerns beyond reason, especially among local officials and residents who opposed legalization.

“When we did community meetings in this one town, the people just ripped us apart,” Boothe said. “They called us drug dealers. They said we were going to destroy their community. We went through that for a year and a half. Some people just aren’t ready to hear it.”